The Side Effects of Shadow Banking on Banks’ Liquidity Provision

Teodora Paligorova, João A C SantosFinance金融中介Top Field

Review of Corporate Finance Studies2026-03-21Federal Reserve Board of Governors; Federal Reserve Bank of New YorkDOI

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Abstract The presence of shadow banks in corporate term loan syndicates adversely affects credit lines’ liquidity provision, despite shadow banks not directly funding credit lines. Within the same syndicated loan deal, shadow banks attract not only riskier borrowers but also fewer banks as co-lenders, both in the term loan and in the credit line. Furthermore, credit lines in deals funded by shadow banks, compared to those without shadow bank participation, are smaller, with shorter maturities, and lower drawdown rates. Overall, our results highlight that syndicated loan deals with a strong presence of shadow banks offer borrowers lower liquidity protection.

Shadow (psychology)Market liquidityLoanSyndicated loanCredit crunchShadow banking systemTerm loanBank creditFinancial systemBusinessMonetary economicsBanking stability, regulation, efficiency